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Defrauding the Marital Community in Texas

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Often times, before commencement of or during a suit for dissolution of marriage, one spouse will commit fraud against the couple’s community estate. Texas law recognizes two types of fraud: (1) constructive fraud; and (2) actual fraud.

Constructive fraud claims are based on a breach of fiduciary duty by one spouse against the other. Puntarelli v. Peterson, 405 S.W.3d 131, 2013 Tex. App. LEXIS 1458, 2013 WL 561484 (Tex. App. Houston 1st Dist. 2013) If someone owes a fiduciary duty, they have a legal obligation to act in the best interest of another. When a constructive fraud claim is being alleged, the argument is that one spouse has a fiduciary duty to act in the best interest of the other spouse regarding the protection and management of the community estate, and that duty was breached by a spouse who misappropriated assets from the community estate. A constructive fraud claim can also be pursued under the theory of waste, where one spouse disburses community assets for noncommunity purposes without the other spouse’s knowledge or consent. Connell v. Connell, 889 S.W.2d 534, 1994 Tex. App. LEXIS 3020 (Tex. App. San Antonio 1994)

Actual fraud claims in a suit for dissolution of marriage are similar to fraud claims outside the family law context. In re the Marriage of DeVine, 869 S.W.2d 415, 1993 Tex. App. LEXIS 2682 (Tex. App. Amarillo 1993) To prove actual fraud, a spouse must show the other spouse transferred community property for the primary purpose of depriving the claimant of the property with dishonesty or an intent to deceive which resulted in harm to the community estate. In re the Marriage of DeVine, 869 S.W.2d 415, 1993 Tex. App. LEXIS 2682 (Tex. App. Amarillo 1993) An actual fraud claim requires a higher level of culpability as the spouse alleging the fraud claim must prove the other spouse acted dishonestly or with an intent to deceive.

So what happens if fraud has been committed in your case? If the Court (judge or jury) determines that a spouse has committed actual or constructive fraud on the community, the court shall calculate the value by which the community estate was depleted as a result of the fraud on the community and calculate the amount of the reconstituted estate and divide the value of the reconstituted estate between the parties in a manner the Court deems just and right.  Tex. Fam. Code Section 7.009(b)(1)-(2) The Texas Family Code defines reconstituted estate to mean “the total value of the community estate that would exist if an actual or constructive fraud on the community had not occurred.” Tex. Fam. Code Section 7.009(a)

The Court has a few options once it determines the value of the reconstituted estate. In making a just and right division of the reconstituted estate, the Court may grant any legal or equitable relief necessary to accomplish a just and right division, including:

  1. awarding to the wronged spouse an appropriate share of the community estate remaining after the actual or constructive fraud on the community;
  2. awarding a money judgment in favor of the wronged spouse against the spouse who committed the actual or constructive fraud on the community; or
  3. awarding to the wronged spouse both a money judgment and an appropriate share of the community estate. Tex. Fam. Code Section 7.009(c)(1)-(3)

In a decree of divorce or annulment, the Court shall order a division of the estate of the parties in a manner that the Court deems just and right, having due regard for the rights of each party and any children of the marriage. Tex. Fam. Code Section 7.001 The Court can order an unequal division of the community estate if there is a reasonable basis for doing so. Murff v. Murff, 615 S.W.2d 696, 1981 Tex. LEXIS 316, 24 Tex. Sup. J. 356 (Tex. 1981) That is exactly what happened in the recent Texas Court of Appeals case out of Dallas, In re Interest of MG. In that case, the appellate Court affirmed the trial court’s finding that the Husband had defrauded the community and breached his fiduciary duty to his wife by depleting marital assets, by sending money to support a child and another woman in Africa and loaning a friend $90,000. The trial Court awarded a disproportionate division of the community estate, which was affirmed by the appellate Court.

If you are considering divorce and are concerned about the possibility of unequal property division, contact the Texas attorneys at the McClure Law Group at 214.692.8200.

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